Author Topic: 401K Money and Allocation  (Read 3852 times)

dragonwalker

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401K Money and Allocation
« on: April 09, 2014, 10:45:08 AM »
Alright, so I've been reading and asking questions about various opinions about my 401K money and cash. For now since I may be using the cash on hand for a potential home purchase I've decided to leave that money liquid. However I feel there is more I can do to optimize my 401K. At the moment the money in my 401K is divided as follows:

$19,000- Lifeplan 2050 Retirement Fund (these are target date funds)- Net Expense ratio- 0.22%, 3 year return of 9.05%
$8,000- SSgA MSCI Emerging Market Free Fund- Net Expense ratio 0.22%, 3 year return of -1.99%
$2,000- SSgA DJ/UBS Roll Select Commodity Index Fund- Net expense ratio 0.25%, 1 year return since it was recently created -1.68% but YTD 5.95%
$2,200- AEW Capital Management REIT Fund- Net Expense ratio 0.87%, 3 year return 9.41%

Several people have advised dumping all 401K into a S&P 500 type index fund. My company does offer such a fund called the SSgA S&P 500 Fund, Net expense ratio 0.09% and 3 year return 14.75%! My company does permit me to keep my money in the 401K and readjust even if I leave the company, I can do anything but contribute new funds.

With that said are people's advice to put everything into the S&P 500 fund or something else? Also I'm 26.

matchewed

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Re: 401K Money and Allocation
« Reply #1 on: April 09, 2014, 10:47:44 AM »
This is up to you, your risk tolerance, your Asset Allocation, and perhaps consider writing up an Investment Policy Statement.

No one can decide for you, but at your age going into a very aggressive investment plan isn't too bad. But that depends on whether you think you can take the swings something aggressive may/will go through.

dragonwalker

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Re: 401K Money and Allocation
« Reply #2 on: April 09, 2014, 10:53:39 AM »
Also, about 90% of the money are in Roth 401K money if that also matters.

seattlecyclone

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Re: 401K Money and Allocation
« Reply #3 on: April 09, 2014, 04:17:07 PM »
There's no right answer here. Everyone's goals, risk tolerance, and predictions for the future are different. These things greatly affect what your asset allocation should be. I would say that a target date fund isn't a bad choice for someone who's getting started investing. That fund should already be diversified between stocks and bonds (with a bias toward stocks since 2050 is still 36 years away), so it's not unreasonable for you to put your entire 401(k) balance into there for now while you learn more.

After you do that, learn more! Do some reading about investing in general. Learn about the risk profiles of stocks vs. bonds, small-cap vs. large-cap, domestic vs. international, etc. Once you have a better grasp of why someone might want to invest more heavily in one asset class instead of another, take a look at what your target date fund invests in. If you think that their asset allocation is a good fit for you, just leave the money there. If you think they're a bit underweight on stocks or REITs or some other category, you might want to buy those in addition to (or instead of) the target date fund.

One thing I will advise you about is to take a look at whether Roth contributions are in your best interest. If you have a relatively high salary now and plan to retire early, traditional pre-tax contributions may make more sense. There are lots of good strategies on this board for deferring your 401(k) income so that you don't have to pay much (if any) tax at all on this money when you retire.

Grateful Stache

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Re: 401K Money and Allocation
« Reply #4 on: April 09, 2014, 07:57:23 PM »
As usual, the Seattle Cyclone has great advice. Target-date retirement funds are not a bad place to have your money while you learn about the market.

While I'm not a fan of the 100% S&P 500 strategy (take this as you will - I'm a newbie too), I do have one comment about your current asset allocation: You have almost half of your money in emerging markets and commodities, both of which are highly volatile.

Cheers and keep us posted!

TomTX

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Re: 401K Money and Allocation
« Reply #5 on: April 09, 2014, 08:04:06 PM »
The expense ratio on that REIT makes me go all itchy.

Eww.

wtjbatman

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Re: 401K Money and Allocation
« Reply #6 on: April 10, 2014, 06:20:35 AM »
While I'm not a fan of the 100% S&P 500 strategy (take this as you will - I'm a newbie too), I do have one comment about your current asset allocation: You have almost half of your money in emerging markets and commodities, both of which are highly volatile.

Choosing between the two I'd much rather rely on the good ol' blue chips of the S&P 500 than those emerging market/commodity funds.

Grateful Stache

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Re: 401K Money and Allocation
« Reply #7 on: April 10, 2014, 06:36:45 AM »
While I'm not a fan of the 100% S&P 500 strategy (take this as you will - I'm a newbie too), I do have one comment about your current asset allocation: You have almost half of your money in emerging markets and commodities, both of which are highly volatile.

Choosing between the two I'd much rather rely on the good ol' blue chips of the S&P 500 than those emerging market/commodity funds.

No doubt.

I guess I was trying to say that even a little bit of diversification (e.g., 80% S&P 500 and 20% Total International) can have benefits over 100% S&P 500.
« Last Edit: April 10, 2014, 06:41:08 AM by Grateful Stache »